The Ninth U.S. Circuit
Court of Appeals yesterday asked the California Supreme Court for a ruling on
whether the registrar of an Internet domain name can be held liable for its
conversion by a party that fraudulently persuaded it to cancel the true owner’s
registration.

The request is the
latest turn in the long legal battle over “sex.com.”

The name was registered
in 1994 by Gary Kremen, doing business as Online Classifieds, Inc., but saw
little use in the next 18 months. In October 1995, Stephen Michael Cohen asked
that the name be re-registered to a Nevada company he controlled.

In support of his
request, Cohen supplied a letter on Online Classifieds stationery, purporting
to be signed by the president of Online Classifieds, authorizing the
cancellation of the original registration and the re-registration of the name
to Cohen.

Cohen then used the name
to build a multimillion-dollar on-line pornography business. About eight months
after the re-registration, Kremen asked for the name back, claiming that the
letter was a forgery.

Network Solutions, Inc.,
then the exclusive registrar of “.com” domain names, said it would not change
the registration back without a court order. Kremen then sued Cohen, several
Cohen-controlled entities, and Network Solutions for damages and injunctive
relief.

Punitive Damages

Kremen eventually
obtained control of the name, along with a judgment against Cohen and his
companies for $65 million, including $25 million in punitive damages. U.S.
District Judge James Ware of the Northern District of California rejected
Cohen’s claim that he had legitimately purchased the name from Online
Classifieds for $1,000.

But collecting has been
difficult, and Kremen claims Cohen has been hiding assets offshore.

Cohen, meanwhile, moved
to Mexico, where he has claimed
to be under house arrest, and has not complied with orders in aid of the
judgment. A warrant was issued for his arrest, and his appeal from the judgment
was dismissed under the fugitive disentitlement doctrine.

Ware, however, rejected
Kremen’s claims against Network Solutions, leading to the appeal which was the
subject of yesterday’s order, by a divided panel of the appeals court.

The majority said the
state’s highest court should decide whether California law requires that an
intangible property “be merged with a document or other tangible medium” in
order for the tort of conversion to apply, as suggested by Restatement
(Second) of Torts Sec. 242. If state law does impose such a requirement,
the Ninth Circuit judges said, then the state court should also decide whether
an Internet domain name satisfies the merger requirement.

‘New and Substantial Issue’

Ninth Circuit Judge M.
Margaret McKeown and Senior U.S. District Judge James M. Fitzgerald of Alaska, sitting by
designation, said the appeal “raises a new and substantial issue of state law
in an arena that will have broad application” and should be decided by the
state court.

But Judge Alex Kozinski
dissented, arguing that the resolution of the issue would not affect many cases
and that California law clearly favors
Kremen’s position.

This state’s courts long
ago rejected the common law rule that property could only be the subject of
conversion if “tangible,” the jurist said, pointing to an 1880 Supreme Court
ruling that allowed a suit for conversion of shares in a corporation and
rejected the defense argument that the plaintiffs could sue for conversion of
the share certificates, but not the shares themselves.

“None of this matters
anyhow,” Kozinski went on to say, because Kremen would win even if the “merged
in a document test” is applied.

Kremen has “the right to
have people who type ‘www.sex.com’ into their web browsers sent to his
website,” Kozinski—generally regarded as among the most tech-savvy members of
the bench—explained. “It is, in standard Geek, the right to have the
second-level .com domain ‘sex’ associated with his [internet protocol] address
in [Network Solution’s] .com registry,” the judge elucidated.

‘Too Much to Bear’

Kozinski also attacked
Network Solutions’ claim that it had no reason to question the authenticity of
Cohen’s letter as “too much to bear,” especially given the explanation that
Online Classifieds wasn’t communicating directly because it lacked “a direct
connection to the Internet.”

The judge commented in a
footnote:

“It’s a bit as if Judge
Reinhardt sent a letter to the DMV saying, ‘Judge Kozinski wants you to
transfer title to his Lamborghini to meóhe’d write to you himself, but he’s out
of stamps.’ ”

Kremen’s lawyer, James
Wagstaffe, said that while he was unhappy with the delay that certification
will cause, he was “absolutely buoyed” by the fact that there is now a
published order which, in combination with the dissent, suggests that “the
goliath of this industry—may be accountable.”

The California Supreme
Court, he told the MetNews, an excellent court” in which to argue intellectual
property issues and a good forum for “21st Centurying the law.”

Network Solutions’
attorney, Kathryn Karcher, said she had been instructed by her client not to
comment.